Generic Strategy Unit IV

Anjali Singh

Choice Phase Generation of strategic alternatives that can

fill the gapChoice of a strategy to reduce the gap

between threat and opportunity

Strategic Alternatives Choice of products and services – breadth

and depth How can products be differentiated –

additional uses ? Level of quality? Choice of Markets – territories, channels and

customer types How does the firm want to add value -

complete vertical integration or focus on few areas only

Four Generic Strategy Alternatives Stability Expansion Retrenchment Combination

Generic Strategic Alternatives Expand Retrenc

hStabilize

Combination

BusinessDefinition

Pace Business Definition

Pace BusinessDefinition

Pace

Products Add new Territories

Find new Uses

Drop old products

Decrease product development

Maintain Package changes Improve quality

Drop old & add new products

Markets Find New territories

PenetrateMarkets

Drop Distribution channel

Reduce Market share

Maintain Protect market share, focus on Niche

Drop old customer fine new ones

Function Integration

Increase Capacity

Captive company

Decrease R & D

Maintain Improve production efficiency

Increase capacity & improve Efficiency

Stability Strategy Safety Oriented , Status Quo Strategy Focus is on

Current products ,markets and functions Same level of effort as at present

Stability StrategySame product/service or same market and

function sectors as defined in its business definition or very similar sectors

Main strategic decision focus is on incremental improvement of functional performance

Concentration of resources where it has competitive advantage

May also include defensive moves like taking legal action or applying for patents

Tracking new developments to ensure strategy is relevant

Stability Strategy-when Normally applicable for maturity stage Maintain comfortable profit/market situationControl wild swings in past performances

Stability Strategy-why ? Firm is successful but management does not

know why Less risky When firms pursue it unconsciouslyEasier and comfortable Environment is stable Resources or environment constraint Expansion could be dysfunctional Rest between expansion Costs may have gone haywire

Stability Strategy- Types Incremental Growth Harvesting Strategy

Stable/declining marketsProduct is not prestigious Small market share – increase in share is costly Contribution of product/SBU is insignificant to the total sales

Sustainable growth strategy Stability as a pause strategy

Expansion Strategy When a firm

Serves the public in additional sectors or products/services/markets/functions

Focuses its strategic decisions on major increase in the pace of activity within the present business definition

Expansion Strategy – When Introduction stage Growth stage

Expansion Strategy – Why ? Survival Equated with effectiveness Belief that society benefits from expansionManagerial motivation Belief in experience curve Belief that growth yield monopoly power Pressure from Stockholders / financial

analysts

Retrenchment Strategy Retrenchment strategy followed when

Reducing product/markets may be seen to be necessary/desirable

Firm focuses strategic decisions on functional improvements through the reduction of activities in units with negative cash flows

Retrenchment Strategy Redefine its business by divesting a product

line / SBUAbandon some market territories Reduce its functionsUse lay off , reduce R &D, marketing

Retrenchment Strategy – Why?

Firm is not doing well Pressure from stakeholders to improve

performance Environment is threatening Better opportunities in environment

elsewhere

Combination StrategyFocus on conscious use of several grand

strategies ( stability , expansion, retrenchment) simultaneously

Focus on use of several grand strategies at different future times.

Combination Strategy – Why ?Firm faces different environments and these

environments are changing at different rates Firm’s products are at different stages of life

cycle Multiple Industry firm